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Fuel Price Volatility

Riding the Wave of Fuel Volatility

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Fuel price volatility is now a fact of life for those in the industry. Gone are the days of simply filling your tanks to the brim on a schedule to ensure that you don’t run out of fuel at your location. (That is not to say that you ever really want a tank to run-out, but it does occasionally happen.) I like to think of fuel volatility as waves coming in to shore, some of them small, many of them large, but certainly constant. As a fuel buyer, you are in a boat dealing with these waves, making adjustments, trying to stay on course, and navigate through them. In the days before constant price volatility, navigating your boat was much easier as the waters were considerably calmer, a bit like sailing on a smooth–as–glass lake, versus a choppy ocean bay.

Volatility has changed the fuel procurement process and put everyone’s boat in the bay. Now, if you decide to simply keep your tanks full all of the time, you’re sacrificing cost or margin for this simplicity. To illustrate how much this has changed, a price swing of 3 cents or greater only happened 6% of the time prior to 2004. Since 2004, it happens nearly 50% of the time. That’s quite a convincing statistic. If you think for a moment that basically every other day, the price is moving 3 cents or more, you definitely want to have a handle on that shift in price.

Whether you are a retailer trying to maintain margins, or a fleet based company trying to stay within budget, these cents add up. There are also days when the market moves dramatically, and with enough force to make a big difference to your budget. Think of it as a large wave coming towards your tiny boat. For instance, in June, the price for gasoline moved up over 32 cents in a single day in California. That’s a big wave, and one that although probably won’t sink your boat, can have you throwing pails of water overboard for a couple of days, rather than sailing on. But, if you imagine being hit by another wave while you are below deck trying to throw out water, things can get very bad very fast. For a move not quite as dramatic, but still impressive, gas was down in Chicago over 12 cents on that same day.

So, let’s assume you have a fleet of boats, with one in Chicago and one in LA. On that day in June, if you aren’t paying attention you could easily buy on the wrong side of both and get hit with a ‘wave’ on both sides on the same day. Needless to say, that could be a wet, soggy, and miserable day.

Now, as with many things, technology and an experienced team can help to mitigate these movements and put you back in control of your little boat.  It’s kind of like trading your compass for a radio and electronic navigational equipment.  It really makes it easier to sail your boat knowing that you are prepared for the next wave of volatility that may come your way. You know that there is little chance that the wave will catch you napping at the wheel or send you below deck to throw pails of water from your sinking boat.


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